Gold Gains on Weak Dollar Amid Stimulus Hopes

Posted by Adam King onAugust 13, 2012

August 13, 2012 – Gold prices are up on Monday amid speculation that the European Central Bank will take action to aid a besieged euro that has lost ground in currency markets against the US dollar and also amid speculation that slow growth in global markets could be yet another harbinger of fiscal stimulus from central banks around the world.

Weak risk appetite, which has been pervasive in markets in recent weeks, is creating a narrow band in which gold has been trading with the trend likely to continue for the near term.

Gold did manage to continue a gain of more than 1 percent last week, a gain made on the wide speculation that the ECB will take initiatives to bolster the euro, such as the outright purchase of bonds, according to Reuters. The euro has been besieged by the Eurozone debt crisis and recent comments by ECB president Mario Draghi have given investors and market analysts reason to believe that aid from the ECB will be forthcoming.

The spot price of gold gained 0.3 percent to $1,624.10 per troy ounce as US gold futures for August delivery gained $4.00 per troy ounce to $1,626.80. Gold has remained range-bound in a $51 range since late July and even last week’s gain of 1 percent has not breached the range.

LGT Capital Management analyst Bayram Dincer stated that the upside level of the range-bound area is around $1,630 per troy ounce. He also stated that a break out above $1,633 per troy ounce is necessary to bring the price of gold into a higher range.

Dincer attributes gold’s latest moves upward to growth-friendly actions by China on Friday, but also states that investors and market participants have been waiting for a clearer signal from the ECB and the Federal Reserve as to their plans for policy before taking more bullish stances on the gold market.

The euro gained 0.3 percent against the dollar with a correlation between gold and the euro/dollar near 0.6 Monday, averaging 0.53 so far this year, far below a perfect positive correlation of 1, indicating there is still equilibrium to be reached with price moves higher in gold.